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Is Home-Host Cultural Distance a Risk? Evidence from Outward Foreign Direct Investment by Chinese Enterprises

Author

Listed:
  • Hang Su

    (College of International Economics and Trade, Dongbei University of Finance and Economics, Dalian, China.)

  • Yao Fu

    (College of International Economics and Trade, Dongbei University of Finance and Economics, Dalian, China.)

Abstract

Cultural distance is always regarded as a risk in the decision making of enterprises involved in the outward foreign direct investment (OFDI), however, investment is a powerful driver of productivity growth and increased innovation capacity of enterprises in both countries. Is cultural distance a risk ? Using Hofstede s indicators and the Kogut and Singh index (1988), this paper calculates the cultural distance based on six cultural dimensions and further examines the effect of cultural distance on the outward foreign direct investment by Chinese enterprises and its mediating effects on the role of other factors influencing the decisions of multinationals. The results indicate that there is a nonlinear effect of cultural distance and the mediating effect of cultural distance is negative.

Suggested Citation

  • Hang Su & Yao Fu, 2022. "Is Home-Host Cultural Distance a Risk? Evidence from Outward Foreign Direct Investment by Chinese Enterprises," International Journal of Economics and Financial Issues, Econjournals, vol. 12(1), pages 7-12.
    • Handle: RePEc:eco:journ1:2022-01-02
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    More about this item

    Keywords

    Cultural Distance; Multinationals; Outward Foreign Direct Investment; Nonlinear Effect; Belt and Road Initiative;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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